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A group of buyers and sellers of goods or services and the institution or arrangement by which they come together to trade

Three Key Economic Ideas

1)People are Rational2)People Respond to economic incentives3)Optimal decisions are made at the margin

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Economics

The study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce resources

Scarcity

Our wants are unlimited, but the resources to fulfill those wants are limited

Economic Model

A simplified version of reality used to analyze real-world economic situations

Marginal Analysis

Analysis that involves comparing marginal benefits and marginal costs

Trade-Off

The idea that because of scarcity, producing more of one good or service means producing less of another good or service

Opportunity Cost

The highest valued alternative that must be given up to engage in an activity

Centrally Planned Economy

An economy in which the government decides how economic resources will be allocated

Market Economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources

Mixed Economy

An economy in which most economic decisions result from the interactions of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources

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Productive Efficiency

A situation in which goods or services are produced at the lowest possible cost

Allocative Efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost producing it

Voluntary Exchange

A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction

Equity

The fair distribution of economic benefits

Economic Variable

Something measurable that can have different values, such as wages of software programmers

Positive Analysis

Analysis concerned with what is

Normative Analysis

Analysis concerned with what ought to be

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

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